Five Below Faces Mixed Analyst Reviews: Strategy Shift And Lower Growth Projections Pressure Stock

Five Below, Inc. FIVE released its second-quarter results yesterday.

Analysts covering the company provided their takes:

• Goldman Sachs analyst Kate McShane maintains a Buy rating on the stock, lowering the price target from $124 to $106.
• Truist Securities analyst Scot Ciccarelli reiterated the Hold rating, lowering the price forecast to $87 from $89.
• JP Morgan analyst Matthew Boss maintained the Neutral rating, raising the price forecast to $89 from $86.

Goldman Sachs: The analyst writes that the company’s strategy to enhance value through a more targeted merchandising approach is promising, though it will require time to produce noticeable outcomes. McShane notes that while traffic remains positive, conversion rates are under pressure, with guidance suggesting that the comparable store sales trends for the second half of the year will be similar to the -5.7% observed in the second quarter.

The company intends to invest in labor and pricing, but these costs are anticipated to be balanced by savings elsewhere.

The analyst has revised the store growth forecasts for FY25 and FY26, with the new projections set at 9.3% and 9.5% respectively, down from the previous estimates of 12.4% and 13.5%.

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Truist Securities: According to the analyst, although sales were slightly better than anticipated (comparable store sales fell 5.7% compared to the expected 6.5% decline), the company continues to experience a mid-single-digit decline and expects this trend to continue into the second half of the year.

The company also intends to cut their SKU count by up to 20% and refocus on $1, $3, and $5 price points, marking a partial shift away from their 5 Beyond strategy.

Due to the lead times associated with this business, the analyst does not anticipate any significant changes in merchandising until around the second quarter of 2025.

JP Morgan: Five Below aims for mid-teens unit growth and low-single-digit comparable store sales increases (around +2-4%), with margins expected to remain roughly flat, the analyst writes.

The company faces a 3% fixed-cost hurdle, which should result in low-to-mid-teens EPS growth over the next several years, following a ~100 basis points improvement in operating margin through FY26 (compared to a pre-2019 bottom-line profile of over 20%).

Over the last eight quarters (2022 and 2023), the firm’s total basket has decreased year-over-year as consumers stick to tighter budgets.

Additionally, the analyst suggests that the contribution from the Five Beyond initiative will diminish in FY25 and further in FY26 as the overall comparable base grows each year.

Price Action: FIVE shares are trading higher by 0.18% to $79.08 at last check Thursday.

Photo by Mike Mozart from Wikimedia Commons

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